UK economy shrinks in Q2, recession fears intensify

LONDON — The United Kingdom’s economy contracted in the three months to June, figures released Friday showed – a smaller-than-expected contraction that nevertheless added to the jitters over the rocky months ahead.

According to the Office for National Statistics, Britain’s gross domestic product fell by 0.1% between April and June, compared to a growth of 0.8% in the previous quarter. GDP contracted by 0.6% in June and growth estimates for May were revised down from 0.5% to 0.4%.

The Statistical Office said health spending was the biggest contributor to the decline, as the government scaled back coronavirus testing, contact tracing and vaccination programs.

“Many retailers also had a tough quarter,” said Darren Morgan, ONS director of economics. “These were partially offset by growth in hotels, bars, hairdressers and outdoor events throughout the quarter,” in part due to Queen Elizabeth II’s platinum jubilee celebrations in June.

Analysts said the decline didn’t necessarily signal the start of a recession, often defined as two quarters of economic contraction. However, the Bank of England says the UK is likely to slide into recession later this year as a cost of living crisis deepens and inflation rises above the current 9.4%.

The average UK household fuel bill is up more than 50% this year as the war in Ukraine puts a strain on global oil and natural gas supplies, and another hike is planned for October when the average bill is expected to be £3,500. ($4,300) per year will be .

“The decline in UK GDP in the second quarter was largely due to noise,” said James Smith, developed markets economist at ING Economics. “But the risk of a recession is mounting rapidly, with gas futures hitting new highs for the coming winter and our latest estimates suggesting the household energy ceiling could be close to £5,000 in the second quarter of next year. Much now depends on fiscal policy announcements in the fall.”

Poverty reduction advocates, consumer groups and opposition politicians are urging Prime Minister Boris Johnson’s Conservative government to help people cope with skyrocketing bills. But Johnson is in his final weeks as prime minister and says “major fiscal decisions” should be left to his successor, who takes office in September.